Shah v. Racetrac Petroleum, Inc.

• Decision Date: 31 July 2001
• Docket Number: No. 3:99-CV-410.,3:99-CV-410.
• Citation: 275 F.Supp.2d 920
• Parties: Siddharth SHAH and Daksha Shah, d/b/a Yera's Raceway, Plaintiffs v. RACETRAC PETROLEUM, INC., Defendant
• Court: U.S. District Court — Eastern District of Tennessee

275 F.Supp.2d 920

Siddharth SHAH and Daksha Shah, d/b/a Yera's Raceway, Plaintiffs v. RACETRAC PETROLEUM, INC., Defendant

No. 3:99-CV-410.

United States District Court, E.D. Tennessee, Northern Division.

July 31, 2001.

COPYRIGHT MATERIAL OMITTED

Jay W Mader, Arnett, Draper & Hagood, Knoxville, Mark La Mantia, Farrell and La Mantia, Raleigh, NC, for Siddharth Shah dba Yera's Raceway, Daksha Shah dba Yera's Raceway, plaintiffs.

Debra L Fulton, Frantz, McConnell & Seymour, Knoxville, for Racetrac Petroleum Company, defendant.

MEMORANDUM OPINION

JARVIS, District Judge.

In this diversity action¹, plaintiffs Siddharth and Daksha Shah ("plaintiffs" or "the Shahs"), husband and wife, d/b/a Yera's Raceway, seek $579,000 in compensatory damages and $15 million in punitive damages from defendant Racetrac Petroleum, Inc. ("RPI"), arising from the termination of the parties' business relationship regarding a convenience store known as Raceway 773 located at 2003 E. Broadway in Maryville, Tennessee. It is undisputed that RPI utilized the 30-day termination clause of the contract documents to end, at that time, the parties' almost 14-month long business relationship and that it did so in order to sell Raceway 773 to Downey Oil Company, Inc. ("Downey Oil"). The Shahs primarily contend that they were told by RPI representatives that RPI would never terminate a relationship with a contract operator except for a serious failure to perform. Given these representations, the Shahs allege, in their second amended complaint ("complaint"),² the following state law causes of action:

(1) Breach of contract, including the implied covenant of good faith and fair dealing (2) Promissory estoppel;

(3) Promissory fraud; and

(4) Fraudulent or negligent misrepresentation.

The Shahs also allege that RPI has violated the Tennessee Petroleum Trade Practices Act (TPTPA), Tennessee Code Annotated §§ 47-25-601, et seq., and the Tennessee Consumer Protection Act (TCPA), Tennessee Code Annotated §§ 47-18-101, et seq.³

This matter is presently before the court on the following motions filed by RPI:

(1) Motion to dismiss or, in the alternative, for summary judgment [Doc. 14];

(2) Motion for summary judgment on punitive damages [Doc. 38]; and

(3) Motion for summary judgment on limiting damage proof [Doc. 58].

The issues raised have been exceptionally well briefed by the parties [see Docs. 15, 20, 31, 39, 56, 59, 60, 61, 62, and 65].⁴ The court also heard oral argument on some of these issues on August 1, 2000. For the reasons that follow, RPI's motion for summary judgment will be granted, and this case will be dismissed. Consequently, RPI's remaining motions will be denied as moot.

I. Facts

The facts of this case will be viewed in the light most favorable to the Shahs. In late 1994, the Shahs became interested in purchasing a business for investment purposes. One of the businesses considered and investigated by the Shahs was Raceway 773, then operated by Clyde and Gloria Holt. The Holts indicated they would sell that business, including certain interior improvements, inventory, and goodwill, for $90,000.⁵

The Shahs first learned that Raceway 773 was for sale from Bhanu Mehta, who was also considering its purchase. In his preliminary investigation of Raceway 773, Mr. Mehta examined both the lease and the contract under which the Holts rented and operated Raceway 773 with RPI. After examining those documents, Mr. Mehta discovered that each instrument contained a 30-day termination clause. Mr. Mehta asked Mr. Holt about the termination clause, and Mr. Holt informed him that RPI would not terminate the lease or the contract as long as the operator made rental payments on a timely basis and operated the business in a satisfactory manner. Mr. Mehta also inquired about the termination clauses from other RPI operators and was likewise informed by them that RPI would not terminate the lease or contract as long as the operator paid the rent on time and maintained the business in a satisfactory manner.

In December 1994, the Shahs personally examined the lease between the Holts and RPI regarding Raceway 773. Like Mr. Mehta, the Shahs expressed concern to Mr. Holt over investing money in a business from which they could be removed upon 30 days notice. In response, Mr. Holt informed the Shahs that, "As long as you perform to [RPI's] satisfaction they never kick anybody out." [See Doc. 19, Ex. A, p. 35 (Siddharth Shah dep.)]. The Shahs also inquired about the termination clause with RPI's district manager at that time, J.D. Main⁶. According to Mr. Shah's testimony, Mr. Main advised him that, "`Racetrac [sic] policy is that they will not kick any dealer out as long as they perform satisfactorily.'" [See id., p. 77].

Additionally, the Shahs spoke with the soon-to-be district manager for RPI, James Smith. Mr. Shah again expressed his concern over the 30-day termination clause and stated that any money invested into Raceway 773 would be "very high risk if Racetrac [could] kick me out within 30 days [of] me [sic] purchasing the store." [See id., p. 49]. According to Mr. Shah, Mr. Smith responded:

Racetrac operates their business as a family. Racetrac never kick [sic] any dealer out from that business as long as it perform [sic] satisfactorily.

[See id., p. 50].

Nevertheless, Mr. Shah was concerned and requested a five or ten-year lease instead of RPI's standard one-year lease. [See id., p. 66]. According to Mr. Shah's testimony, Mr. Smith advised him verbatim as follows:

Racetrac will not permit any changes into [sic] this agreement. . . . Don't worry about it, Mr. Shah, you will not have any problem if you perform right.

[See id.]. Mr. Smith also counseled the Shahs to check with other RPI operators regarding RPI's reputation. The Shahs did so and received similar assurances from those operators, such as Nayan Shah. The Shahs began to move forward with the transaction to buy Raceway 773 and completed a credit report in January 1995.

On February 7, 1995, the Shahs purchased the business from the Holts. In doing so, the Shahs executed a confirmation of purchase and sale agreement with the Holts, paying them a total purchase price of $81,172.59.⁷ Regarding the transaction with RPI, the Shahs executed a document package including, but not limited to, a lease and contract, each containing the 30-day termination clause. Prior to executing these documents, Mr. Shah once again expressed concern about the termination clause to Mr. Smith, who assured him again that, "If you perform right we will not kick you out." [See id., p. 62].

After the execution of the document package between RPI and the Shahs, Mr. Smith telephoned the general manager of RPI stores, Floyd Philpot. Mr. Smith introduced the Shahs to Mr. Philpot, and Mr. Philpot welcomed the Shahs to "the Racetrac family." [See id., p. 56-57]. Mr. Philpot also reiterated to the Shahs that, "there will not be a problem as long as we [the Shahs] perform satisfactorily." [See id., p. 67].

Regarding the contract and lease entered into between the Shahs and RPI, certain key provisions must be set forth for purposes of analyzing the relevant legal issues. The initial language of any import is highlighted above the word "CONTRACT" on the first page:

THIS CONTRACT DOES NOT CREATE A FRANCHISE RELATIONSHIP UNDER STATE OR FEDERAL LAW (See Paragraph C)

[See Doc. 14, Ex. 2 to Ex. A, p. 1]. Paragraph C then sets forth the separate "No Franchise" provision:

C. No Franchise. — Constractor [the Shahs] acknowledges that this Contract does not create, extend, or renew a franchise under any local, state, or federal law including the Federal Petroleum Marketing Practices Act (PMPA). Contractor further acknowledges that this Contract with Contractee [RPI] is a separate and distinct contract and is not associated with any other agreements, contracts, or franchise relationships which may now or hereafter exist between Contractee and Contractor. Contractor further acknowledges that Contractee is the retailer of the fuel facility to be operated hereunder and that this Contract does not give any rights to the Contractor as a fuel retailer. Contractor further acknowledges that this Contract cancels any existing leases, agreements or other contracts, except any lease, agreement or contract of same date, or any ground lease on the Premises between the parties, that may have existed between Contractee and Contractor.

[See id., pp. 2-3].

With respect to title to the fuel, the contract provides:

F. Gasoline and Payment Obligations. — Contractee owns and retains all title to the fuel at the property until sold to the customer. Contractor agrees that all funds collected for fuel sales are the property of the Contractee and further agrees to act as the agent of Contractee in the collection and safe keeping of all monies collected for sale of fuel. Contractor acknowledges that he owes a duty of trust to Contractee in the collection and safe keeping of all funds collected for sales and acknowledges that he holds himself in such fiduciary relationship to Contractee. Contractor agrees to remit funds so held in trust to Contractee upon demand or otherwise as directed by Contractee in cash or by cashier's check. . . . In addition, Contractor shall submit all books and records relating to the sale of fuel and gasoline products purchased from Contractee for an audit and taking of inventory. . . .

[See id., pp. 3-4].

The termination clause of the contract specifically provides:

E. Term of Contract and Renewal. — This Contract shall be for a duration of twelve (12) months from date of execution, provided the Contractor complies with all the terms and conditions and covenants herein, it being the intent of the parties that the term of this Contract will run concurrently with the term of the Lease executed as of even date herewith. Provided that there has been no default as defined in this Contract within the existing term of the...